IPC Holdings, Ltd. Reports Fourth Quarter 2005 Results

In addition to the GAAP financial measures set forth herein, IPC Holdings, Ltd. (the "Company") has included certain non-GAAP financial measures in this Press Release within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. "Net operating (loss) income" and its per share equivalent, as used herein, differ from "net (loss) income before preferred dividend" and its per share equivalent under GAAP, which the Company believes is the most directly comparable GAAP measure. Net operating (loss) income is a common performance measurement which, as calculated by the Company, is net (loss) income before preferred dividends and excluding net realized gains and losses on investments. These items are excluded because they are not considered by management to be relevant indicators of the performance of or trends in our business operations, but rather of the investment and credit markets in general. We believe that the presentation of net operating (loss) income provides useful information regarding our results of operations because it follows industry practice, is followed closely by securities analysts and rating agencies, and enables investors and securities analysts to make performance comparisons with our peers in the insurance industry. This measure may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on net operating (loss) income as a non-GAAP measure in assessing IPC's overall financial performance.

For the quarter ended December 31, 2005, our net operating loss was $(68.5) million, or $(1.17) per share, compared to net operating income of $10.0 million, or $0.21 per share for the fourth quarter of 2004. For the year ended December 31, 2005 our net operating loss was $(612.8) million, or $(12.04) per share, compared to net operating income of $132.7 million, or $2.74 per share, for the year ended December 31, 2004.

President and Chief Executive Officer Jim Bryce commented: "2005 will long be remembered for setting records in terms of both frequency and severity of catastrophic events. In the north Atlantic alone, there were 27 named storms, which resulted in six letters of the Greek alphabet to be used as names, for the first time.

As we are all very aware, one of the 27 storms, Katrina, is set to establish a new record for insured losses as a result of the windstorm itself, and the floods that followed. Those losses will undoubtedly be a multiple of the losses from any previous event. In the fourth quarter, the main event of note was hurricane Wilma, which itself set a new record as the most intense tropical cyclone ever recorded in the Atlantic basin. The end of the fourth quarter was a busy period for our underwriters, as they negotiated contracts renewing January 1, 2006.

It was a somewhat bittersweet period, as the painful impact of various storms continued to be felt, and at the same time the beneficial effects on demand for catastrophe reinsurance and the pricing of renewals, especially for U.S. business, started to be experienced".

Mr. Bryce added "We were generally pleased with the pricing of contracts renewing 1/1/06, although it was less robust in Europe and in one or two other minor territories, than we had originally  anticipated. IPC has been well positioned to handle the increase in demand, especially with our consistency of business strategy and track record of timely claims settlement. We also believe that we will continue to be well positioned to face further increases in demand as catastrophe models are recalibrated as a result of the events of 2005, and the resultant impact on rating agency requirements. IPC was severely tested in 2005, but we believe that we passed the challenges with flying colours, and remain a highly respected company in this specialty sector of the market. This was also evidenced by the gratifying level of confidence and support that was demonstrated by capital providers, during the offerings of our common and preferred shares that we completed in the middle of the fourth quarter".

In the quarter ended December 31, 2005, we wrote gross premiums of $13.6 million, compared to $34.7 million in the fourth quarter of 2004. The primary driver for the decrease is the level of reinstatement premiums that were written in the fourth quarter of 2004, as a result of losses recorded from hurricanes Charley, Frances and Ivan, and typhoon Songda, which had occurred in the third quarter of 2004.

Reinstatement premiums were $16.9 million less in the fourth quarter of 2005, compared to the fourth quarter of 2004. In the fourth quarter of 2005, we wrote new business of $0.7 million, which partially offset business that we did not renew, which totalled $1.5 million. The effect of changes to business written for existing clients, which includes changes to program structure and/or renewal dates, as well as pricing and changes to foreign exchange rates, was a $2.8 million decrease in the fourth quarter of 2005, compared to the fourth quarter of 2004. Excess of loss premium adjustments were $0.9 million in the quarter ended December 31, 2005, a decrease of $0.5 million compared to the fourth quarter of 2004. For the year ended December 31, 2005, we wrote gross premiums of $473.4 million, compared to $378.4 million, an increase of 25%. New business in the period totalled $24.8 million, which more than offset business not renewed totalling $21.4 million. Reinstatement premiums for the year ended December 31, 2005 totalled $129.2 million, compared to $32.5 million in the corresponding period of 2004. Also, excess of loss adjustment premiums in 2005 were $7.3 million, compared to $12.8 million in 2004.

In the fourth quarter of 2005, we ceded $1.2 million of premiums to our retrocessional facilities, compared with $2.1 million for the quarter ended December 31, 2004. The actual contracts ceded are at IPC's underwriters' judgement in optimizing the risk profile of the portfolio, which can cause premiums ceded to vary as a proportion of our gross writings, from quarter to quarter. For the year ended December 31, 2005, we ceded $21.6 million to our retrocessional facilities, compared to $20.1 million of ceded premium in 2004.

We earned net premiums of $76.1 million in the fourth quarter of 2005, compared to $93.2 million in the fourth quarter of 2004, a decrease of 18%. This decrease is also due to the difference in reinstatement premiums noted above. For the year ended December 31, 2005 net earned premiums were $452.5 million, compared to $354.9 million in the year ended December 31, 2004, an increase of 28%. Excluding reinstatement premiums, earned premiums were generally flat in comparison to earned premiums in the corresponding period of 2004.

We earned net investment income of $23.7 million in the quarter ended December 31, 2005, compared to $13.6 million in the fourth quarter of 2004. On November 4, 2005, we received approximately $614 million in net proceeds from our offerings of common and mandatory convertible preferred shares. Approximately 50% of this amount was invested in line with the existing asset allocation, while the balance was invested in relatively short-dated fixed income securities, which will be used to provide liquidity for claims payments in respect of hurricanes Katrina, Rita and Wilma, and other prior events. Investment income in the fourth quarter of 2005 included $3.7 million in dividends from our investments in equity funds and a fund of hedge funds. By comparison, we received a dividend of $1.5 million from these investments in the fourth quarter of 2004. We also benefitted from an increase in the average yield of our fixed income investment portfolio. For the year ended December 31, 2005 net investment income was $71.8 million, compared to $51.2 million in 2004. Dividends from our investments in equity and hedge funds totaled $9.9 million in the year ended December 31, 2005, compared to $4.8 million in the corresponding period of 2004. In addition, we benefitted from a 25% increase in the balance of invested assets, primarily as a result of our share offerings, as well as the improvement in the average yield on our fixed income portfolio noted above.

We realized a net loss of $(6.4) million from the sale of investments in the quarter ended December 31, 2005, compared to $(1.3) million in the fourth quarter of 2004. Generally, net realized gains and losses fluctuate from period to period, depending on the individual securities sold. For the year ended December 31, 2005 we realized a net loss of $(10.6) million from the sale of investments, compared to a net gain of $5.9 million in 2004.

In the quarter ended December 31, 2005, we incurred net losses and loss adjustment expenses of $154.3 million, compared to $81.2 million for the fourth quarter of 2004. Our losses in the fourth quarter of 2005 stem primarily from hurricane Wilma, which made landfall in Florida in October 2005, for which we have estimated total claims in the amount of $112.8 million. The balance of the incurred claims in the quarter related to increases to our estimate of losses from prior periods, primarily hurricanes Katrina and Rita, which increased by $30.8 million to $863.8 in aggregate, an increase of 4%. Our loss ratio, which is the ratio of net losses and loss adjustment expenses to net premiums earned, was 202.9% for the quarter ended December 31, 2005, compared to 87.1% for the fourth quarter of 2004. For the year ended December 31, 2005 our incurred net losses and loss adjustment expenses totalled $1,072.7 million, compared to $215.6 million in 2004. In addition to the losses mentioned above, we incurred losses from cyclone Erwin in January ($20.0 million), floods that affected parts of Europe in August, 2005 ($8.6 million) and the south-east Pacific Tsunami from late December, 2004 ($8.0 million). Losses from prior periods totalled $55.2 million, primarily related to the various windstorms of the third quarter, 2004. Our loss ratio for the year ended December 31, 2005 was 237.0%, compared to 60.8% for 2004.

Our net acquisition costs, which are primarily commissions and fees paid to brokers for the production of business, were $8.5 million for the fourth quarter of 2005, compared to $10.0 million in the fourth quarter of 2004. These costs have decreased with the decrease in earned premiums, but because brokerage on reinstatement premiums is at a lower level than brokerage on annual premiums, the decrease was not proportionate. For the year ended December 31, 2005 net acquisition costs were $39.2 million, compared to $37.7 million in 2004. The primary reason for the increase is the impact of reinstatement premiums and the lower level of brokerage thereon, as mentioned above.

General and administrative expenses totaled $6.5 million in the fourth quarter of 2005, compared to $6.8 million in the fourth quarter of 2004. The decrease is the result of service fees incurred, which are based on earned premiums, partly offset by an increase in salaries and benefits. For the year ended December 31, 2005 general and administrative expenses were $27.5 million, compared to $23.2 million in 2004. In addition to the increases in administrative service fees noted above, the expense for letters of credit provided to our U.S. cedants is significantly higher in 2005, because of the increased level of loss reserves collateralized. There has also been an increase in compensation expense, and professional fees resulting from compliance with the requirements of the Sarbanes-Oxley Act, 2002.

Our expense ratio, which is the ratio of net acquisition costs plus general and administrative expenses to net premiums earned, was 19.7% for the fourth quarter of 2005, compared to 18.0% for the fourth quarter of 2004. For the year ended December 31, 2005 our expense ratio was 14.8%, compared to 17.1% for 2004.

On February 21, 2006, the Board of Directors declared a quarterly dividend of $0.16 per common share, payable on March 23, 2006, to shareholders of record on March 7, 2006. On February 21, 2006, the Board of Directors also accepted, with regret, the resignation of Mr. Anthony Pilling as a director of the Company and IPCRe Limited, as a result of his ill health. The Board of Directors paid tribute to his service as both a Board member and as chairman of the Investment Committee during the past seven and a half years.

At a Special General Meeting of our shareholders on February 21, 2006, approval was given to increase the number of our authorised Common Shares from 75,000,000 to 150,000,000, and to increase the number of our authorised Preferred Shares from 25,000,000 to 35,000,000.

IPC Holdings, Ltd., through its wholly-owned subsidiary IPCRe Limited, provides property catastrophe reinsurance and, to a limited extent, aviation, property-per-risk excess and other short-tail reinsurance on a worldwide basis.